Making Sense of ‘Bubble 2.0′

TechCrunch points to a WSJ piece on the second coming of the bubble. Over the past year and a half there’s been lots of talk and debate about whether we’re in another bubble and whether, by implication, there will be another crash.

The answer: yes and no. First the yes part.

Yes: because there is a lot of money — too much money — chasing a lot of bad or underdeveloped ideas in competitive segments where the hope is to build buzz and usage as fast as possible to be acquired. Nobody is in this for the long term, almost nobody is actually building a business. They’re building good looking features or, worse, shells of businesses to flipped or sold as quickly as possible. In that sense the Internet is like an overheated real estate market now.

Right after the first crash business models started to matter but in the past couple years it’s become about usage first and models second or third. Investors figure that VC money will last until the acquisition before their investments actually have to make money the old fashioned way.

Now the no part.

The single difference between then and now is the audience. The Internet was still not an essential part of people’s lives back in 2001. Now it is. Increasingly the Internet is the primary medium in a fragmented media marketplace. While the advertising dollars have yet to fully recognize and catch up, more will flow online.

Putting aside the consumer dynamics, who’s making money? The answer is: not that many companies and most of them aren’t traditional media companies (whose audiences are eroding to varying degrees). From the recent IAB/PwC report on online ad revenues:

Online advertising continues to remain concentrated with the ten leading ad-selling companies, which accounted for 70 percent of total revenues

What that means as a practical matter is the following: If US Internet ad revenues hit $20 or so billion this year that means that those ten companies (lead by Google) will collect $14 billion in the aggregate. That leaves a still-healthy $6 billion, split mostly among 40 other companies unevenly:

Online ad revenue division

Source: IAB/PwC (10/07)

Online is one of the very few “healthy” advertising market sectors right now.

To be sure, we are certain to see lots of these companies fail in the next 12-18 months, only a few will be acquired and fewer still will make revenue. However the fact of real money being made by some online and the migration of audiences to the Internet as a primary medium means that Bubble 2.0 is quite different than its predecessor.

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One Response to “Making Sense of ‘Bubble 2.0′”

  1. Fast Money On The Internet Says:

    I had something to say about this, but I totally forgot what it was…,

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